Fed keeps rates stable, but support rises for an increase

“The Fed is in no hurry to raise rates”, Arnaud Masset, market analyst at Swissquote Bank, said via e-mail. It was the first time it has used that wording since late previous year, when it most recently raised rates.

HSBC economists issued a report expressing doubt that the Fed will even hike in December, and rates overall remain low and monetary policy accommodative.

Fed Chair Janet Yellen, speaking after the central bank’s latest policy statement, said United States growth was looking stronger and rate increases would be needed to keep the economy from overheating and fueling high inflation. However, the US dollar has not followed suit, weakening following the Fed announcement.

It also hinted that it will likely raise rates this year because the USA job market has strengthened and economic activity has picked up even though business investment is soft and inflation remains low.

In her news conference, Yellen offered a simple explanation for why the Fed didn’t raise rates: The economy can still grow without hurting itself. They tend to represent the views of business leaders in their districts, and they are often perceived as being sympathetic to banking interests and quicker to support increases in interest rates. This leaves ample room for strengthening conviction to have a meaningful impact on asset prices if Fed-speak remains hawkish and economic data complies.

Heating oil rose 2.5 cents to $1.45 a gallon, wholesale gasoline rose less than 1 cent to $1.40 a gallon and natural gas fell 7 cents to $2.99 per 1,000 cubic feet.

In paper gold, holdings in the exchange-traded funds (ETFs) tracked by FastMarkets have risen 6.7 tonnes bought overnight, bringing the total to 2,117 tonnes – a touch below the year’s high of 2,119 tonnes.

Says Razaqzada: “Indeed, the Bank of Japan (Wednesday) promised to buy bonds until inflation overshoots its target, which could take several years given that Japan is now in deflation”. The regional bank presidents from Kansas City, Cleveland and Boston had wanted to boost rates now.

The chart shows that the probability of the Fed Funds rate being raised has dropped, as far as the 2 November meeting goes.

“This seems to have been one of the most divisive FOMC meetings in recent memory”, Ashworth said.

The Federal Reserve chose to leave its target interest rate unchanged at a range of 0.25 percent to 0.5 percent while suggesting a hike later in the year was very likely. Add to that the fact that the Fed downgraded the number of rate hikes it sees in coming years and what Wall Street is seeing is a “risk-on” attitude.

In its statement, the Fed acknowledged the case for raising interest rates has strengthened.

Yellen said the case for an increase in rates has grown stronger.

The existing home sales data was weaker than expected with a decline to an annual rate of 5.33mn for August from a revised 5.38mn previously.